In the continuing debate over how to balance
cost-containment and patient protection in health care reform, external
review of health plan decision making is a rare bird - a policy innovation
championed by industry spokespeople and consumer advocates alike. Nearly
half a decade into the experiment in the "laboratory of the states," some
basis exists for a preliminary assessment.

Background

Two features of managed care were catalysts
for external review. First, some health plans implemented prospective review
for health plan coverage of surgeries and other expensive services, and
concurrent review for extended hospitalizations. In contrast to traditional
retrospective review of benefit claims, prospective or concurrent review
focuses attention on the practical equivalence of third-party payment decisions
and treatment decisions in an era of high-technology medicine. In many
cases, an up-front denial from the health plan meant the patient could
not obtain the service. Second, the prominence of cost-containment and
profit motives in managed care made consumers distrustful of health plans’
internal appeals mechanisms.

According to the Health Policy Tracking
Service of the National Conference of State Legislatures, as of December
1999, 30 states and the District of Columbia had some form of external
or independent review mandate. In addition, 10 states have passed external
review laws this year, the latest being Massachusetts in a bill signed
by Gov. Paul Cellucci on July 21. Key issues for drafters include:

who controls the review process (e.g., is
a state agency charged with selecting reviewers and coordinating referrals
or does that power rest with the affected health plan);

who pays for the review;

what kinds of disputes are subject to review;

what criteria guide or constrain reviewers
(e.g., are reviewers bound by the definition of medical necessity or experimental
treatment in the insurance contract);

timetables for action, including filing deadlines
and expedited review of urgent cases; and

The selection of criteria for assessment
of a policy experiment is a tricky business. Even where there is agreement
that something is important, measurement tools or data may be lacking.
For external review, the list would likely include consumer awareness of
the availability of review, actual and perceived fairness and timeliness
of review, consistency of decisions across cases and with professional
standards, effect of implementation on the volume of lawsuits filed against
health plans by consumers and on consumer trust in the health care system,
and direct and indirect costs.

Utilization of external review by consumers
has been limited to date. According to data released by the American Association
of Health Plans, the appeals rate per 10,000 covered lives in states with
active programs ranges from a low of 0.1 in Missouri to a high of 1.3 in
Texas, with the average somewhere around 0.6. There is nothing intrinsically
bad about a low rate—it could reflect an absence of disputes or health
plans’ readiness to reverse denials at a point in the appeals process prior
to issuance of a formal reviewer opinion, among other things. Still, low
utilization numbers may be an indicator of lack of awareness. In its National
Survey of Consumer Experiences with Health Plans, Kaiser Family
Foundation found considerable confusion among consumers, with substantial
percentages mistaken concerning the availability of external review in
their states.

Despite the many differences on specifics,
most states with programs in place report that reviewers support consumers
about half the time. (On July 20, Vermont officials reported that the majority
of reviews in that state favored health plans, but with only 6 cases decided
officials advised that any conclusions would be premature.) This result
suggests success according to criteria of fairness and consistency–certainly
a less balanced ratio would raise concerns that reviewers were biased in
favor of one side or the other, and wildly different ratios across states
might lead to skepticism about the possibility of consensus on standards
of medical appropriateness. Direct costs appear reasonable, in the realm
of $400-500 per case. For other areas of concern, reliable data is not
yet available.

Legal and Other Challenges

The federal Employee Retirement Income
Security Act, commonly referred to as ERISA, exempts employer self-insured
plans from state regulation. Some health plans maintain that ERISA also
blocks (in legal terms "preempts") any state law affecting benefit determinations.
On July 27, the Fifth Circuit Court of Appeals affirmed its ruling that
the Texas independent review organization (IRO) provisions are preempted
by ERISA. At the same time, the Court hinted that it might bless some kind
of anticipatory vicarious liability review: "We acknowledge that there
is a powerful argument in support of an IRO procedure in which the only
inquiry is whether a proposed treatment meets the standard of care demanded
by Texas of physicians.... Under this view, what Texas can regulate through
malpractice suits, Texas could also administratively regulate as a mandated
term of insurance." Corporate
Health Insurance v. Texas Dept. of Insurance (5th Cir. 2000) (ruling
on state’s petition for rehearing). A similar challenge has been leveled
against the Illinois HMO Act. Somewhat ironically, Texas health plans have
continued to embrace the state’s IRO procedure, and at the national level
accrediting agencies and trade organizations are working on their own external
review requirements.

There is a possibility, now remote, that
Congress will act to impose a uniform federal scheme. Otherwise, state
regulators, and review panels, will need to strive for greater clarity
concerning the goal of external review. As suggested in the preceding discussion,
options include:

evaluating the appropriateness a requested
service for the particular patient constrained only by standards of sound
medical practice, meaning that reviewers are charged with determining whether
a requested service lies within the range of medically reasonable alternatives
either
without regard to contractual definitions of medical necessity and/or experimental
treatment or without regard to any term of the insurance
contract (including the list of covered services and specific exclusions);

evaluating the appropriateness of a requested
service for the particular patient constrained by all the terms of the
particular insurance contract as well as standards of sound medical practice;
and

testing denials against a malpractice standard,
meaning that reviewers only decide against a health plan if a health care
provider’s failure to take action with respect to the requested service—it
is unclear whether the action would be to offer, recommend, advocate for,
or render the service—would constitute a breach of the applicable standard
of care.

A different kind of threat is transfer of
risk to physicians, a new development emanating from California. External
review is a response to distrust of health plans and does little to address
concerns about physicians.

Final answer? External review is a modest
policy success, and much work remains to be done.